October 16, 2017
Last December, with my having a very bullish outlook for stocks in 2017, I pointed out that the overwhelming majority of Wall Street analysts were looking for VERY modest gains in 2017...that, in fact, the survey I cited had the average Wall Street analyst showing just a 3.7% gain in the S&P for the entirely of 2017, which projected out to having the S&P 500 therefore close at about 2320 on December 31st of this year…Obviously, with the S&P now at 2550, unless there is a massive crash between now and year, they will have been, as they statistically virtually always are, about as wrong as you can get.
Following up on their brilliant analysis, and to further substantiate my belief that listening to ANYTHING they say is a total waste of time…and in reality will probably be severely detrimental to your investing, here is a chart that demonstrates how wrong they actually have been…to which I would also add...the year still has almost 3 months left to go.
And to add to all that, I would remind you that those same people were ALSO essentially bearish throughout 2016 as well…not to mention that on several occasions when the market dipped, they would have had you unloading with the market severely in the hole.
The point here is not to basically call all those people a bunch of financial idiots…It is to show you, in black and white, that THESE OPINION SHAPERS ARE ROUTINELY, AND ALMOST INEVITABLY, WRONG ALL THE TIME…ABOUT EVERYTHING IN THE INVESTING UNIVERSE…And that whether it is being hog wild for Crude Oil at $150, or Gold at $1900, or Treasury Bonds at 175…or where stocks are going…OR what is going to happen with interest rates, these ever-wrong people DO represent the primary source of what public/investor opinion becomes…They ARE where all the investing world’s opinions originate…They DO, en masse, dictate what supposedly matters. They DO endlessly spout their perennially erroneous “logic” about everything financial…AND THE POINT IS…THIS INCLUDES THE CURRENT WIDELY HELD OPINION THAT INTEREST RATES WILL BE MOVING UP ONLY SLIGHTLY, AND EVEN THEN, AT A SNAIL’S PACE.
I continue to think that the Eurodollar market, representing short term interest rates, has a LONG, LONG way to go on the downside…And believe me, this is NOT even close to what all those Wall Street geniuses would have you believe.
Again, as I have written before, just like all those Wall Street guys, NOBODY at the Fed saw this coming in Stocks either…that is, NONE of their interest rate plans included a quietly “roaring” stock market…And I maintain that this shoe must DEFINITELY be dropping for them now…the realization that stocks could be getting out of hand…and the realization that stocks are signaling a MUCH stronger economy than any of them had imagined.
AND…the next thing that’s coming, I believe, is a series of MAJOR surprises on the economic growth and inflation fronts…
For one, take a look at these three industrial commodity futures markets…which all appear to be in various stages of lifting off…And believe me, they ARE telling you something about how “brisk” the economy is moving out there…
They are MOVING…and Crude Oil, led by Diesel Fuel ( Heating Oil) that POWERS just about everything industrial in the economy, is not far behind…
Knowing what your own eyes and ears should tell you about where the economy is headed, can you imagine any reason why ANY of those three significantly indicative markets should suddenly just stop…and head south? Or can you look out in to 2018…say, just for the first six months of Spring and Summer…and envision them continuing to strengthen---quite possibly in leaps and bounds?...I mean really, this is all happening BEFORE we even get to tax reform? Or infrastructure rebuilding?
I CONTINUE TO THINK THESE INDUSTRIAL COMMODITIES, AND THE ECONOMY, ARE GOING TO SOAR…AND ASIDE FROM BEING LONG THOSE MARKETS, IT JUST MAKES SENSE TO NOW BE BETTING THAT RATES WILL HAVE TO MOVE UP SUBSTANTIALLY ABOVE THEIR CURRENT STILL ABSURDLY ROCK BOTTOM LEVELS.
Do you think health care is going to be getting cheaper? Or housing prices? Or Airline tickets? Or Gasoline prices? Or ANYTHING?
Do you see the “now hiring” signs popping everywhere you go? The labor market is getting tighter and tighter and it does NOT argue for stagnant wage growth.
Folks, we ARE in a booming economy…It’s just that all the “Don’t buy it” experts haven’t realized it yet…Inflation and growth ARE in the pipeline and I think we are SOON going to see the Fed suddenly saying, “Whoops! It’s better than we thought! We need to hit the brakes!”
So yeah, you keep hearing the same song from me…but this IS starting to happen, and I will just as forcefully say it again: The time to make your bets is now, BEFORE all the New York experts wake up to the reality of their the NEXT big surprise…that being RATES ARE RISING RAPIDLY, NOT AT THIS TURTLE LIKE SPEED THEY ALL THINK WILL BE THE CASE.
Here are both the near term and long term charts of LIBOR, which is the basis on which Eurodollar futures are priced.
And here is the long term…to show you how ABNORMALLY low rates still are…
I keep saying it…A major part of this business DOES involve being able to totally IGNORE the ever-wrong “logic” that emanates from seemingly ALL the supposed analysts and experts who unfortunately are the major source of information for the investing masses…One more time: THEY DO NOT KNOW…And one more time: This idea of rates just inching higher will SOON prove to be just one more black and white example (like those stock market predictions) of how wrong they can be.
EURODOLLARS ARE ON THE MOVE. They made new lows again today…Somewhere in here, and I think literally any day now, I look for some news event to suddenly have them knock off 20-30 points in a matter of DAYS…It’s just the way this stuff happens…wherein, crawling lower (for now a cumulative 30 points in the past 5 weeks) turns into BLASTING lower…As always, this is my opinion and I may be dead wrong but I continue to recommend buying something like the puts shown below...and not “thinking about it”, or “maybe next week.” The grill is heating up and I think all of this is happening NOW. Again, my opinion. But I definitely think it is time to be getting this done.
Here is a close up of the June, 2018 contract…
Here’s the trade from right here…8 months of time…8 months of what I think will be nothing but FIRMLY bullish news regarding the economy…
Just as an example to demonstrate that the leverage here is very real, this very same option…one month ago with Eurodollars about 30 points higher…was trading at 2 or 3 ticks…versus 12 today…the point being, although I may be dead wrong and this option will expire worthless, the possibility of seeing it go from $330 to $1200-$1500 is NOT some pie-in-the-sky dream. The leverage here is real.
And it is NOT too late to buy puts here…Very definitely not.
Pick up the phone and do something with this…
All option prices in this newsletter include all fees and commissions.
The author of this piece currently trades for his own account and has a financial interest in the following derivative products mentioned within: Eurodollars